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Is Cheap or Free a Good Way to Tempt Investors?

September 16, 2018

On the heels of the announcement by Vanguard that they are expanding their lineup of commission-free ETFs, Fidelity announced the launch of two new index funds with an expense ratio of 0%. These are interesting moves that, in our opinion, signal that some of the biggest players in the investment industry no longer feel they need provide any type of investment strategy that attempts to outperform the market. All they have to do is mirror it and investors will be placated with a cheap management price.

You might ask, what’s wrong with this philosophy? “At least, I’m getting the performance of the best 500 stocks in America.” Yes, that may be true, but you are also getting 100% of the risk of the market as well. You’re not getting any leverage whatsoever against the downside of the market, which causes the most damage to a portfolio. This isn’t success…it is status quo. No wonder these large investment companies aren’t charging you for their “expertise.” Perhaps it is because it doesn’t require much expertise to match an index.

So when did investors give up the mindset that an investment firm should strive to beat the market in order to be worth the money we pay them? This is like accepting a tie whenever your favorite professional sports team plays a game. We wouldn’t be happy with that scenario, so why are we accepting this form of complacency regarding our investments? Yes, they may not be charging you anything to match the market, but you aren’t really getting anything out of the ordinary for your money either.

In order to be successful at the investment game, you have to create leverage against the market. This means striving to make more money than the market when it goes up, and lose less than the market when it falls.  However, the “buy and hold” or passive investors will argue that there is no accurate way to outperform the market consistently over time, so you might as well just tag along with the index, take your beatings when the market falls, and by the way, “we won’t charge you anything”. Many investors now buy into this delusionary mindset.

It is time to break the paradigm and start demanding more for your investments. Investors have literally thrown up their hands in defeat by getting beat in the market from bad advice from their financial advisors. Every investor who has been taken to task by the stock market in the last two recessions will tell you their own horror stories about trying to find someone who can consistently beat the market, but has never done so successfully when the market drops. Yes, there are a few timers who read their tea leaves correctly and avoided the perils of the market drop in 2008 by getting out of falling equity positions early. But for the most part, that was more luck than science. Now, investors say they “hope” to avoid another market drop by being in index funds. Isn’t it interesting to note that these same hopeful investors will likely suffer the same fate as before when the market falls and they will lose exactly what the market does.

So, what’s the answer? The answer is to find an investment partner that strives to do better than the market using the best that technology has to offer. This means making investments compete for your money by proving they can find productivity in the market and buy into those productive investments at the right time. Then, tell you how long you should be in these investments, and when you should get out of them. In addition if there isn’t anything productive to invest in, you’ll be put into a cash position until something productive can be purchased. This process of investment management has been successful in the past at outperforming the S&P 500 index by using artificial intelligence software and mathematical algorithms to determine optimal portfolios for both upward market cycles as well as recessionary ones. The computing power that is needed to drive these algorithms is immense, and yes, it does cost money for the investor. However, if historical returns have outperformed the standard index, wouldn’t it be worth it?

Instead of accepting the standard of mediocrity which is the S&P 500 index, why not take advantage of the best that algorithm-based investing can provide? Here at Foxstone Financial, we leverage this advanced technology, and we would encourage you to consider putting “The Future of Investing” to work for you.  Isn’t your future worth it?


About Foxstone Financial
Foxstone Financial is a Denver-based investment advisor that uses the latest artificial intelligence investment technology, decades of market experience and a network of specialized partners to serve clients that expect better than average.